Focus DIY is to unveil plans for a Company Voluntary Arrangement (CVA) of 38 non-trading stores on Wednesday, as part of the DIY chain’s turnaround plan.
Its lenders have agreed in principal to renew its two-year revolving credit facility, on the condition that the retailer can deal with the £12m a year cost of the so-called dark stores.
Focus will announce the CVA to creditors on Wednesday, and a decision will made on August 24. If successful the CVA will save the retailer £8.6m of the £12m a year.
Chief executive Bill Grimsey said: “We have to deal with the dark store situation, it’s a no-choice option for Focus. But it’s business as usual. All the major landlords know about it.”
16 of the 38 stores have sub-tenants, while 22 lie completely empty.
Focus wants to get out of paying rent, service charges and insurance on the stores. In return, the landlords will receive a dividend from a pot of money. This dividend is expected to be, on average, the equivalent of six months rent, paid in two equal parts in January and April of next year.
Focus will continue to pay business rates on the properties until the landlord surrenders the lease or assigns it.
Focus has already agreed a pre-CVA deal with landlords on five of the 38 stores. Those landlords have received a “slightly earlier” dividend payment.
The majority of Focus’s landlords are already accepting monthly rent payments, but as part of the CVA, Focus will be asking the remaining landlords to move to monthly rent payment for the next 18 months.
Grimsey said the retailer will return to quarterly payments after this period. “We believe this will see us through this very difficult period,” he said.
Grimsey said he had had a “very positive” reaction from suppliers and landlords so far.
He said: “The current management and the new Genesis store format in particular are seen by landlords and the trade as being exactly what is required for a healthy DIY player. They recognise we have no choice. It’s the right route to take and avoids administration.”
Ben Grose, asset manager for retail warehouse properties for British Land, which owns five of Focus’ profitable stores, said he is supportive of the CVA.
He said: “It’s backed by a very credible management team with a proven track record. This gives us the confidence that there is genuine longevity in the brand going forward. It’s a pretty fair deal. The alternative is administration, which would result in the landlords getting nothing.”